The U.S. has "over $62 trillion in unfunded liabilities."
Frank Wolf on Tuesday, April 19th, 2011 in a news release.
Rep. Frank Wolf says U.S. has over $62 trillion in unfunded liabilities
Weeks ago, when credit rating agency Standard & Poor’s downgraded its outlook for U.S. debt from "stable" to "negative," Rep. Frank R. Wolf, R-10th, was not surprised.
"The warning flags are flying as we move closer and closer to the edge of the financial cliff," Wolf said in a statement on his website, pointing to his own previous alerts that the the nation’s mighty Triple-A credit rating was in jeopardy.
Wolf called the downgrade a "predictable warning," adding: "I've been sounding a similar one for almost five years as I've tried to get the attention of Congress and the past and present administrations that America cannot continue on its current debt and deficit track, with over $14 trillion of debt, over $62 trillion in unfunded liabilities, and over one trillion dollar deficits projected for years to come," Wolf added.
There’s one number in there that failed to ring a bell.
We know the national debt is more than $14 trillion; in fact, we recently reached the debt limit of $14.3 trillion. It’s also true that future deficit projections -- under the current budget plan -- exceed $1 trillion annually. But is it true that the U.S. has more than $62 trillion in unfunded liabilities?
We thought it was worth a look.
For a source, Wolf’s office pointed to a 2010 report from the Peter G. Peterson Foundation, an organization devoted to public awareness of fiscal issues. The study contains a table entitled "Major Fiscal Exposure." A sum of $61.9 trillion is calculated for 2009, adding "explicit liabilities" (public debt, pensions, etc.) "commitments and contingencies" and "social insurance promises" (future social security benefits and future Medicare benefits).
Predictably, the biggest driver of the staggering total is social insurance promises, which accounts for $45.8 trillion -- $38.2 trillion of which is future Medicare benefits. Social Security benefits account for the rest.
As noted in fine print, the projections come from the Social Security and Medicare Trustees reports dated Jan. 1, 2009, and estimate benefits over the next 75 years. The rest of the data comes from the U.S. Treasury’s 2009 report.
First, there’s an issue of terminology.
"Technically, Mr. Wolf is in error because he calls the shortfalls in Social Security and Medicare ‘unfunded liabilities’" said J.D. Foster, an economist with the right-leaning Heritage Foundation. "Legally, they are not liabilities. They can be referred to accurately as promises or obligations."
Foster said the benefits do not qualify as liabilities because "Congress can at any time reduce or alter them. In contrast, state pension plans are contractual labor arrangements that are liabilities because they are legally enforceable."
Gary Burtless, an economist with the left-leaning Brookings Institution, agreed, calling the idea that the government "owes" trillions of dollars to future citizens from a variety of programs under rules that are currently in effect "ridiculous."
"The Supreme Court has ruled that the U.S.A. does not have a contractual obligation to pay Social Security and Medicare under rules that Congress has no power to change," Burtless said in an email. "No citizen can expect to win a lawsuit that demands that benefits be paid that are as generous as the benefits that were ‘promised’ under some old, presumably more generous set of rules."
Nevertheless, we’ll limit the Truth-O-Meter point reductions on this point because the Peterson Foundation report and media reports we found refer to the future Social Security and Medicare benefits as "liabilities" rather than "obligations."
The next problem is less debatable: the information is outdated.
According to the latest Medicare and Social Security trustees reports, the numbers have changed significantly since 2009. Promised Medicare benefits for the next 75 years now total $24.6 trillion, according to 2011 numbers, and Social Security benefits have increased to $9.2 trillion.
So Medicare obligations are now $13.6 trillion less than the data upon which Wolf based his claim , largely due to the health care reform act passed last year. Social Security obligations are $1.5 trillion trillion more. The net effect of those changes is that projections for future obligations are $12 trillion less than the 2009 data Wolf uses.
But the trustees reports for this year hadn’t been released when Wolf made his claim, so we must look at the 2010 reports.
Last year’s projections showed Medicare obligations to be $22.78 trillion over the 75 years and Social Security at $7.95 trillion for a total of $30.73 trillion. Using that comparison, Wolf’s off by even more, $15 trillion.
And of course the debt has also changed. In the report Wolf cites, the publicly-held debt -- U.S. bonds held by individuals, institutions and foreign nations -- is listed as $7.6 trillion. On the day he issued his statement, it was $9.7 trillion. So add $2.1 trillion back and he’s off by almost $13 trillion.
Other numbers have changed, too, but you get the point: The 2009 estimate was not a safe number in April 2011.
Others argue that estimating unfunded obligations 75 years into the future is never safe.
"One can certainly come up with all kinds of scary – but essentially meaningless – estimates of the ‘unfunded liability’ of the federal government’s programs," Burtless, the Brookings economist, said. "As a general rule of thumb, the bigger the estimate, the more meaningless it is."
Burtless noted that the numbers change wildly based on annual policy decisions and a 75-year measure was is arbitrary because obligation don’t end then.
"It is impossible to predict 25 years into the future with much accuracy, let alone 75 years or all of eternity," he said.
So let’s review.
Wolf claims that the U.S. faces "over $62 trillion in unfunded liabilities."
First, he and many others misuse the term "unfunded liabilities" to describe the future costs of government promises. Unlike a home mortgage, the U.S. is not locked into paying a certain amount based on existing terms. In fact, Congress changes the terms all the time.
Secondly, the numbers Wolf based his claim on are badly outdated. In fact, using the 75-year estimates he cites, the figure would be significantly lower than $62 trillion based on 2011 figures.
So, while Wolf’s claim is based on an actual figure, it’s an old one that was shaky to begin with given the distant projection and likelihood of change. We rate his claim Barely True.
Editor's note: This statement was rated Barely True when it was published. On July 27, 2011, we changed the name for the rating to Mostly False.